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Our objective is to understand the trading strategy that would allow an investor to take advantage of quot;excessivequot; stock price volatility and quot;sentimentquot; fluctuations. We construct a general equilibrium model of sentiment. In it, there are two classes of agents and stock prices...
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Our objective is to understand the trading strategy that would allow an investor to take advantage of "excessive" stock price volatility and "sentiment" fluctuations. We construct a general equilibrium model of sentiment. In it, there are two classes of agents and stock prices are excessively...
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In a production economy with trade in financial markets motivated by the desire to share labor-income risk and to speculate, we show that speculation increases volatility of asset returns and investment growth, increases the equity risk premium, and reduces welfare. Regulatory measures, such as...
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